· Chapter 12 1 Fiscal policy deals with each of the following, EXCEPT A. the mon

Question

· Chapter 12 1 Fiscal policy deals with each of the following, EXCEPT A. the money supply. B. government spending. C. taxation D. the federal budget. 2. There is a recessionary gap when A. equilibrium GDP is equal to full employment GDP. B. equilibrium GDP is smaller than full employment GOP. C. equilibrium GDP is larger than full employment GDP. D. None of the choices are correct 3. To close a recessionary gap the policy should be to A. raise G and raise taxes. B. lower G and lower taxes. C. raise G and lower taxes. D. lower G and raise taxes. 4. Budget deficits are appropriate during A. recessions, but not inflations. B. inflations, but not recessions. C. recessions and inflations. D. neither recessions nor inflations. 5. Over the last four decades the U.S. had A. only balanced budgets. B. only surpluses. C. only deficits. D. both deficits and surpluses.

Explanation / Answer

Fiscal policy deals with each of the following except the federal budget. There is a recessionary gap when equilibrium GDP is smaller than the full employment GDP. A recessionary gap happens when an economy is in recession. To close recessionary gap the policy should be to raises G and lower taxes. When an economy is in recession expensionary fiscal policy should be adopted. Expensionary fiscal policy results in increased government spending and lower the taxes. Budget deficit is appropriate during recessions, but not in inflations.

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